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SIFMA Roundtable of Economists Sees Economic Growth Steady at Subpar Rate, Deficit Reduction Debate Continues for 2011, 2012

Release Date: July 12, 2011

Contact: Andrew DeSouza, (202) 962-7390, adesouza@sifma.org 

 SIFMA Roundtable of Economists Sees Economic Growth Steady at Subpar Rate, Deficit Reduction Debate Continues for 2011, 2012 

Washington, DC, July 12, 2011—SIFMA Economic Advisory Roundtable released its outlook for the full year 2011 and the first half of 2012, forecasting that U.S. economic growth will grow at a steady rate of 2.5 percent in 2011 and 3.1 percent in 2012.  

“Concerns over fiscal policy, European sovereign debt, regulatory uncertainties, and high commodity prices remain significant risks to the downside,” said Kyle Brandon, managing director, director of research for SIFMA. “While the economic impact of regulatory changes through the Dodd-Frank Act and other international rulemakings remains unclear, our roundtable has judged these reforms to have a negative impact on both the availability and cost of credit over the next 18 months.”

The Economy: 

The median forecast called for gross domestic product (GDP) to rise 2.5 percent in 2011 on a year-over-year basis, and by 2.6 percent on a fourth quarter-to-fourth quarter basis.  Full-year 2011 nonfarm payroll employment gains were estimated to total 1.6 million jobs. For 2012, the median expectation was for a stronger addition of 2.5 million jobs. Survey respondents expect the full-year average unemployment rate to be 8.9 percent in 2011, which will decline to the 8.2 percent in 2012.

Survey respondents maintained a favorable opinion of inflation in 2012 with 40 percent believing inflation was not a concern. Certain factors including economic slack and unemployment would continue to influence the inflation outlook in 2012. One respondent attributed, “borrowing restraint, [an] aging population and sluggish ways will rein in price inflation indefinitely.”

Fiscal Deficit: 

Respondents noted that the economic impact of the [debt ceiling] package would be negative if the deal did not improve the projected path of deficits, with the potential to increase interest rates and decrease the value of the dollar.

A majority (85 percent) of survey respondents expected an extremely negative impact to the markets when asked about the effect of a potential default of U.S. Treasury debt obligations.

Although respondents unanimously agree that deficit reduction is essential in the medium and long-term, they warned that short-term measures could negatively affect the economy.

Respondents cited the current situation in Greece as an ‘extreme’ but ‘illustrative’ example as a possible glimpse into the future if the U.S. did not bring deficits into line.

Financial Regulatory Reform:  

The survey addressed a series of questions about both governmental policy and other regulatory reform measures.  Respondents were generally negative about the impact the Dodd-Frank Wall Street Reform and Consumer Protection Act would have on economic growth, availability of credit, and cost of credit to households and business over the next 18 months. Over 75 percent of survey respondents expected a negative impact on credit availability and nearly 60 percent expected a negative impact on the cost of credit for households. The forecast for impact on the business sector was only slightly less negative, with 65 percent and 53 percent predicting a negative impact on the availability of credit and cost of credit, respectively.

Monetary Policy:  

The roundtable was unanimous in its opinion that the Federal Open Market Committee (FOMC) would not change its current 0.0 to 0.25 percent target federal funds rate during 2011. The majority (approximately 85 percent) expected a rate hike in 2012, although timing of the rate hike was evenly split among the first three quarters of 2012.

The balance of respondents expected a rate hike in 2013.

Respondents who did not put a date to rate hikes opined that the timing of future rate hikes was primarily dependent on improvement in payroll numbers and stable financial conditions.

Interest Rates:  

As of July 6, the end of the survey period, the 10-year U.S. Treasury yield was 3.16 percent. Over half of the survey respondents expected the Treasury yield curve to steepen within the next six months.  Also, the majority of respondents expected investment-grade credit spreads and high-yield credit spreads to continue to narrow over the next six months.

The report also includes forecasts concerning economic growth, employment outlook, and oil prices, among other issues.

The full report can be found at:

http://www.sifma.org/EconomicOutlook20111H 

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The Securities Industry and Financial Markets Association (SIFMA) brings together the shared interests of hundreds of securities firms, banks and asset managers.  SIFMA's mission is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while building trust and confidence in the financial markets.  SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).  For more information, visit www.sifma.org.


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